Can LoveFilm survive the streaming revolution?

LoveFilm will need to fight off the threat posed by the legal downloading and
streaming of films to maintain its market leading position.

Countless classic titles, including Cinema Paradiso, pictured, are available by post from LoveFilm but not to stream. Building its digital library will be a priority if the company is to maintain its lead.

Despite being an undoubted technology success story, as its Amazon deal confirmed, LoveFilm has yet to remove a remnant of traditional businesses that many technology entrepreneurs dread: moving parts.

Each week, it posts out around one million DVDs and computer games to its 1.5m subscribers. Its competitive advantage is founded on its ability to do so efficiently and quickly.

The company’s chief executive Simon Calver has previously estimated that the legal streaming and downloading of films will start to rival physical DVD volumes within four years.

One might even assume that he’d welcome the change it could bring to his business; moving its members to an online subscription would remove the need for its gigantic and costly logistical operation.

It isn’t quite that simple, however, and just as incumbent video rental stores such as Blockbuster failed to anticipate the threat from online DVD-by-post operators, LoveFilm needs to find a smart way to stop its customer base being eroded as consumers switch to streaming and downloading films rather than waiting for them to arrive in the mail.

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Unsurprisingly, like its US rival Netflix, LoveFilm already offers streaming and downloading options. However, choice is relatively limited compared to the wealth of titles available on DVD; of the 70,000 films available to rent by post, just 5,000 can currently be streamed.

Studios have been slow to provide the content and obtaining the necessary subscription and streaming rights is proving a laborious process.

Calver says the short term solution is a “hybrid model”; by being a LoveFilm subscriber, if your chosen title isn’t available to stream, you can have the DVD posted to you.

Since that’s an option rivals such as Sky, Apple, BT and even Google – which recently established its own TV product – won’t be able to offer, it could provide temporary respite for LoveFilm.

In the longer term, increasing the volume of digital titles will be a priority, and Calver says the company is now focusing on tactics such as working with studios to obtain exclusive digital rights on popular titles.

With increased competition for its digital services inevitable, it will certainly need to avoid a repeat of its dispute with Universal Pictures last year which saw titles such as Public Enemies unavailable on the site.

Negotiating with major studios to obtain streaming and downloading rights for films is just one headache: the dominant platform for viewing streamed or downloaded movies has also yet to emerge; will consumers want to stream the majority of titles via games consoles, their television or PC? The answer will influence which partners LoveFilm needs to build relationships with.

Encouragingly, Calver recognises the parallels between what LoveFilm and Netflix did to the likes of Blockbuster and the threat posed to his own business model by downloading and streaming.

He’s previously said that businesses initially tend to overestimate how quickly technology will be adopted by consumers, but ultimately underestimate the long-term impact it will have on their marketplace.

He seems to want a strike a balance between the risk of procrastinating and being left behind and undermining his core business by jumping in too quickly.

When we spoke today, Calver conceded that his four-year estimate for how long it would take streaming and downloading to rival DVD rental may well have been an overestimate. His job now is too ensure the disrupter doesn’t get disrupted.